All animals are equal. . .but some

have been exposed to Orwellian thinking a little too early in their life ;-).

Clearly, the enviable outcome from a market system is a society full of winners and losers. And when I say losers, I mean it in a very harsh sense. The market is cold and uncaring in its allocation decisions, there is no doubt about that. Further, beyond the ability to win and win big, the fear of losing everything is also a powerful incentive to motivate individuals to be productive within the market (or to lobby the government for bailout funds).

Although I do not have an answer to your bigger question about how to both encourage and control greed, this tension between how much the government should control and how much should be left to the market control is very real for policymakers. Of course, we all now know that the government was not willing to take a gamble on AIG failing. The potential number of losers created from that failure was far too great for most politicians.

But now that the deed is done, we seem to be experiencing quite a fallout over these bonuses. Many Americans want these fat cats to pay back these big bonuses as retribution--to make sure they are the losers. But that fact is, these people will never be the losers. They have too much talent (at making money in the market) and too many connections in society to let that happen--ever--even if you take away those bonuses.

The losers in the scenario are not those on the top, they will survive this crisis just find. Instead, the government needs to focus on the individuals at the bottom. They lose without even playing the game (or knowing the rules). We must ensure a basic standard of living for all individuals including health care, food and shelter, and rewarding employment opportunities. These must be paid for with a progressive tax system. Because although we cannot control greed completely with government regulation at least we can protect ourselves from the fall out. Because the market will not protect the losers, even if they did not even know they were playing in the game.

In Greed We Trust...

"Greed" is definitely the buzzword of the day. Whether you're talking retention bonuses, sub-prime mortgages, or Ponzi schemes, greed is what we've got going on.

The irony, as you point out, is that while we've been completely swallowed by the fallout of a system that is governed by greed, the prevailing wisdom seems to be that unleashing just a little more avarice will put us back on track. If drenching your house in gasoline makes it prone to fires, surely the proper remedy is more gas.

Market worship is one of the greatest scams of modern times. When times are bad enough to make it on the local news, we all become a little more aware of the dangers of unbridled capitalism. However, what we fail to realize is that fundamentally, nothing has changed. What we're witnessing is just a shift in the ratios inherent to the status quo. When prosperous people outnumber the poor 10:1, then times are good. When it's the reverse, times are bad. But if you're that 1 that is poor in both situations, is there any difference? How can we morally justify our willingness to qualify prosperity in disregard of the casualties?

Capitalism is the cult of concentration. The goal is to get as much disparity as possible in order to maximize the leverage. The trick, when economics meets politics, is to keep just enough people prospering so that they remain wonderfully indifferent to the suffering of others. At best, however, it's disingenuous for our society to pretend as though capitalism has only started hurting people because of some bad bankers. We're just uncomfortable because fewer of us are still perpetrators.

As you guessed, your last paragraph is most interesting to me. I don't quite understand how you're limiting the greed in your system, though. Truly, I think the only way to do that, and something I'd support, is to eliminate disparity. Greed is only a problem when people believe they can hold onto the piles of money they take from others. If you were not allowed to have more than your share and the rule is enforced, the incentive to stomp on others is removed.

So, what were you planning to do, Mr. Economist?

PS -- I think we can both agree that Obama is not a socialist, no matter how much I might hope for it.

All we need is greed?

Dum da da da da. . .

Well, Jeffy this just in. . .
Uncovered by Politico.com: proof positive that the sitting American President is clearly not a socialist (see "White House: Greed Will Help"). So Obama, Summers, and company seem to be hinting that it is a great time to start buying stock. After all, prior performance is not always a good predictor of future growth--wink, wink.

But can the invisible hand really save us? When you look at Jon Stewart's seething indictment of Jim Cramer and all that CNBC stands for, it is hard to imagine that the same set of incentives that got us into this mess could be our saving grace. Clearly, the invisible hand apparently has no inner moral compass in determining winners and losers (even though, ironically, the invisible hand is a reference to God made by Adam Smith to help float the idea of a society arranged by markets, but I am sure you are tired of me telling you that).

So how do we ensure that greed will be used for good and not for evil? It just doesn't seem possible, after all, it is one of the seven deadly sins you know. But greed is a powerful incentive capable of inspiring new ideas and innovation. Often times more powerful than laws, bureaucrats, and warm-fuzzy ideologies. In addition, greed, like absolute power, is too dangerous to go unchecked. However, any limitation alters its power as an incentive.

So how to proceed?

Well, I think (oh, baby, you are going to love this Jeffy) maybe greed should be like a civil right. The right to pursue happiness for the sake of greed if you will. And just like civil rights, your right to greed should end at the end of my nose. In the context of a market, when people are pursuing their own self-interests, the only time we will get an optimal outcome is if no one individual can overpower anyone else. Greed is in check. The only problem is that, driven by greed, the ultimate goal for individuals in the market is to overpower it (i.e. control the price). Therefore, if we stick with this market system, instability will always be with us. Considering the fruits of capitalism (efficiency, innovation, basically lots of really cool material goods for cheap), is this worth it?

Ball is in your court Jeff-o.

A good way to invest in times of trouble. . .

Check out this website on socially responsible investing. With this strategy, even if you lose all your money in the stock market, at least you supported socially responsible businesses.

It gets my vote for a "Cuttin' the Mustard" award (TM).


Ok, I will stop blogging now.

The Radical Centrist

Obama is clearly not a socialist. But there is a populist backlash rising in America and his pro-market, centrist, non-divisive approach has run into this growing outrage. It is political suicide not to respond or, at the very least, appear to be supportive of this growing wave of anger and outrage (i.e. just look at those Republicans, they seem to be doing just great;).

Unfortunately, I think he is burning the candle at both ends so to speak. On the one hand, he is aggressively laying out plans to subsidize green technology, pour more money into schools, revamp the health care system, and come to the aid of individual homeowners faced with foreclosure. But on the other hand, he is probably going to ask Congress for more money for the likes of AIG and GM. In addition, he is desperately trying to avoid nationalizing banks (although at this point some level of nationalization is inevitable and to some extent has already happened).

Ultimately, he is trying to do everything in a hope that something will stick (just look over the content of that stimulus bill). The lingering question with all of this is how long can Obama walk this tight rope between quelling populist outrage while still bolstering Wall Street? So far, Obama seems to be the right radical centrist for the job, but popular opinion can change quickly--especially if the economy continues to spiral downward. Pressure may build for him to make a choice, which makes me very grateful that I am just a lowly teacher of the dismal science.

Super Obama, indeed!

Did you happen to catch the weekly address? This is of particular interest to our discussion:

Perhaps you disagree, but this language seems uncharacteristic for a sitting president. Not only is he reminding us of his campaign promises voluntarily, but this virtual declaration of economic war seems reminiscent of Teddy Roosevelt.

What do you make of it? What can come from it? Can a sitting president undermine the status quo that now legitimizes his power? If so, doesn't this make Obama's rise to power far more radical than previously considered?